A stream of disappointing corporate profit reports has thus far failed to spur extensive selloffs on the Tokyo stock market.

But it remains to be seen if this bad news has been factored into share prices.

The 225-issue Nikkei average has recouped much of its recent losses and now sits near its pre-Sept. 11 level.

Domestic reaction to these unnerving results has been muted due to built-in corporate fears.

Investors have been somewhat relieved by the strong New York stock rebound amid growing expectations of a pickup in consumer spending over the holidays.

And yet, this bullish sentiment lacks conviction.

Fears remain over the huge losses that have been incurred by information-technology firms and over the bad loans held by the nation’s financial institutions — both of which have exceeded initial expectations.

The disposal of nonperforming loans could force many more firms out of business. In terms of listed companies, 12 have already gone under this year, matching the postwar high set last year.

More than 30 credit unions have meanwhile filed for court protection from creditors.

An uptrend in U.S. consumer spending fueled by interest-free loans and substantial price cutbacks cannot be sustained for long.

There is little reason to expect bullish activity on any stock market.

The recent domestic rally has largely been fueled by buybacks aimed at adjusting oversold positions. Still, a steady decline appears unlikely toward year’s end.

The Bank of Japan may well funnel more money into the banking system to meet a seasonal pickup in demand for bank lending, prompting foreign investors to buy back Japanese equities to adjust their oversold positions.

The birth of a daughter to the Crown Prince and Crown Princess on Saturday could add to the euphoric mood that often characterizes yearend stock market trading.

Against this backdrop, investors are likely to opt for low-priced large-capitalization stocks and defensive stocks, the equities of seasoned firms that emphasize stability over growth. On the other hand, construction, retail, real estate and banking issues could be spurned.

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